Fiscal Note & Local Impact Statement

125 th General Assembly of Ohio

Ohio Legislative Service Commission

77 South High Street, 9th Floor, Columbus, OH 43215-6136 ˛ Phone: (614) 466-3615

˛ Internet Web Site: http://www.lsc.state.oh.us/

BILL:

H.B. 127

DATE:

June 10, 2003

STATUS:

As Reported by House Ways & Means

SPONSOR:

Rep. Jolivette

LOCAL IMPACT STATEMENT REQUIRED:

Yes

 

 


CONTENTS:

Permits municipal corporations and townships to acquire tax-delinquent land for redevelopment free from tax liens, and exempts from municipal taxation certain S corporation income

 

State Fiscal Highlights

 

STATE FUND

FY 2004

FY 2005

FUTURE YEARS

General Revenue Fund

     Revenues

- 0 -

- 0 -

- 0 -

     Expenditures

 

 

 

     School Districts

Potential minimal increases

Potential minimal increase

Potential minimal increase

     Other Local        Governments

Potential minimal decrease

Potential minimal decrease

Potential minimal decrease

Other State Funds

     Revenues

- 0 -

- 0 -

- 0 -

     Expenditures

- 0 -

- 0 -

- 0 -

 

·        Permits municipal corporations and townships to acquire tax-delinquent real estate before the foreclosure proceeding begins without necessarily assuming the entire tax debt.  This could increase the number of local governments acquiring such properties, thus increasing the number and total value of property that is exempt from taxation.

·        The state General Revenue Fund (GRF), which finances the 10% and 2.5% rollbacks on real property taxes and the state base cost funding for Ohio schools, would be affected by these exemptions.  By reducing the amount of property taxes due, the amount of the rollbacks provided by the state is also reduced.  However, in most cases the exemptions also increase the base cost funding payments made to school districts where these properties are located. 


 

Local Fiscal Highlights

 

LOCAL GOVERNMENT

FY 2003

FY 2004

FUTURE YEARS

School Districts

     Revenues

- 0 -

Potential minimal gain or loss

Potential minimal gain or loss

     Expenditures

- 0 -

- 0 -

- 0 -

Counties and Other Local Governments

     Revenues

Potential minimal loss

Potential minimal loss

Potential minimal loss

     Expenditures

Potential savings

Potential savings

Potential savings

Note:  For most local governments, the fiscal year is the calendar year.  The school district fiscal year is July 1 through June 30.

 

·        The bill permits municipal corporations and townships to acquire tax-delinquent real estate before the foreclosure proceeding begins without necessarily assuming the entire tax debt.  This may result in a savings to county governments.

·        Under the bill, the tax debt is forgiven to the extent other taxing districts waive their claim to delinquent taxes on the property.  Any waiver of delinquent taxes would reduce potential revenue for the taxing district.  If a taxing district decline, to waive their claim to the delinquent taxes, the liens for such taxes and costs will continue. 

·        Exempts acquired property from further taxation for as long as it is owned by the municipal corporation.  This exemption reduces potential future tax revenue for local taxing districts.  Statewide, school districts receive 65% of property tax revenue.  The remaining 35% of property tax revenue benefits counties, municipalities, and other local taxing districts.

·        As a result of the property tax exemptions, most school districts could see an increase in base cost funding, which is funded by the state.  This is because the exemption would lower the taxable property valuation.  School districts that are “on the guarantee” would not see an immediate increase in funding.

·        Exempts from municipal income tax all S corporation shareholder income, except income from Ohio-based activities that represent compensation.  Municipal income tax revenues from Ohio-based activities that do not represent compensation and from non-Ohio-based activities that represent compensation would be reduced.

·        Rounds homestead exemption tax reduction amounts for the low-income elderly and disabled to the nearest $10 rather than $100 when indexed for inflation.  In the aggregate, the fiscal effect of this change is expected to be small, but effects on individuals will vary with some gaining and others losing.

 


 


 

 

Detailed Fiscal Analysis

 

The bill authorizes municipal corporations and townships to acquire tax-delinquent real property without necessarily incurring the entire tax debt, and before substantial costs are undertaken by the county in proceeding with the foreclosure.  The tax debt is discharged to the extent that overlapping taxing units (school districts, etc.) release their claims on the delinquent taxes.  Under current law, municipal corporations and other local governments generally may acquire tax-delinquent property on relatively favorable terms only after the property has been offered for sale at public auction, and only after most of the costs of the foreclosure proceedings have been assumed; even then, the tax debt remains with the property, to be discharged, at least in part, from the eventual sale of the property by the local government. 

 

The fiscal impact of this bill is difficult to determine.  Legislative Service Commission believes there could be significant savings to counties by forgoing the foreclosure process.  However, the bill may entice municipal corporations to acquire more real properties than they would under current law.  If this is the case, not only will taxing districts have the ability to forgo tax liens on the properties, but the number of properties no longer subject to taxation will also increase.

 

The 10% rollback on real property taxes and the state base cost funding for Ohio schools are both financed by the GRF.  By increasing the number of properties exempt from taxation, thus reducing the amount of property taxes due, the amount of the rollback would also be reduced.  On the other hand, the exemption would lead to a lower property tax valuation in the corresponding school district, and this could cause the state’s base cost funding payments to the school district to increase. 

 

The cost of the bill will depend upon the assessed value of properties acquired by municipal corporations, the tax rates in the corresponding taxing districts, and the likelihood that taxes would have been collected had the municipal corporation not acquired the property. 

 

            The bill expands the scope of the exemptions from municipal income tax for income flowing through S corporations to a shareholder.  Under current law, such S corporation income attributable to the corporation’s business activities outside Ohio is exempt from municipal income taxation, unless the income represents compensation for services performed by the shareholder for the corporation, or the municipality taxed such income as of December 6, 2002, and voters approve continuing such taxation at the 2003 general election.

 

            The bill would exempt all non-Ohio S corporation income flowing to a shareholder from municipal income tax, including compensation.  Under current law, Ohio-source S corporation income flowing to a shareholder may be taxed by a municipal corporation.  The bill exempts such income from municipal taxation unless it represents compensation.  Removing these two types of income from the municipal income tax base represents a potential loss of revenues to municipal corporations.

 

           

            Under current law, low-income elderly and disabled property owners may reduce their property taxes.  In tax year 2003, those with total incomes of $12,800 or less may reduce their property’s taxable value by the lesser of $5,200 or 75%; those with total income of $12,801 to $18,700 may reduce their property’s taxable value by the lesser of $3,200 or 60%; and those with total incomes of $18,701 to $24,700 may reduce their property’s taxable value by the lesser of $1,000 or 25%.  These income and tax reduction brackets are indexed to inflation, and under current law the results of the calculation are rounded to the nearest $100.  The bill would change rounding of the tax reduction amounts to the nearest $10.

 

            In the aggregate, the effects of this change are likely to be small, but some individuals would gain and others lose.  For example, a 1.3% inflation adjustment (about the recent annual rate of increase in the gross domestic product implicit price deflator, the inflation index required by this law) would increase the $5,200 reduction in taxable value to $5,300 but leave the other reductions unchanged, under current law with rounding to the nearest $100.  If rounding is instead to the nearest $10, the reduction in taxable value for those in the lowest income bracket would instead raise to $5,270, $30 less than with current law, so those in the lowest income bracket would be disadvantaged by the change.  For the higher income brackets, rounding to the nearest $10 would result in larger reductions in taxable value.  The $3,200 reduction would rise $40 to $3,240 and the $1,000 reduction would rise $10 to $1,010.  Individuals in these income brackets would benefit.  Overall, however, effects of this change will be small. 

 

            In general, the difference in tax reduction would be roughly 7% of the valuation difference so that a $30 valuation difference might mean about a $2 tax difference.

 

 

 

 

LSC fiscal staff: Phil Cummins, Economist

 Nickie Evans, Economist

                       

 

HB0127HR/doc